China Says, “Not So Fast Tim!” to the Tentative Agreement!

A Pfennig For Your Thoughts

Rocktober 15, 2019

* All the euphoria on Friday, turns to gloom on Monday!
* If it quacks like QE, walks like QE, and talks like QE, well….

Good Day… And a Tom Terrific Tuesday to you! Another beautiful fall day here yesterday… I’ve always contended that autumn was the best weather we experience here in the Midwest…. And this year is not proving me incorrect, now is it? Had lunch yesterday with a dear friend, and one I haven’t seen in a very long time… Thanks to Ann for picking up lunch, and bringing me up to date with everything in her life, including all about her new beau! We had a reversal for the stock jockeys yesterday, China said, “not so fast there!”, and much more in store for us to discuss today… The Pretenders greet me this morning with their song: Back On The Chain Gang…

Front and Center this morning, we saw a reversal of fortune with the stock jockeys yesterday, as the Chinese said, “not so fast there!” On Friday, the President told us we had a “tentative Agreement”, and on Monday, the Chinese said, “well, we need some more information, and negotiations before we agree that a “Tentative Agreement” has been struck”! I told you yesterday that I wasn’t going to be fooled into thinking that a “Tentative Agreement” was the same as an ironclad agreement! And so the rest of the world learned that lesson yesterday…

The currencies didn’t move much on the latest development on the Trade War, but they did keep their gains from Friday last week, so they had that going for them, eh? And Gold tried to hold to its early gains of nearly $7, but all the plans of mice and men, couldn’t keep Gold well bid throughout the day… But it did manage to eke out a $3 gain on the day… So, not all was lost!

I read a report from the GATA folks on Monday, that carried a quote from Metals guru, Egon Von Greyerz, who had this to say about the growth in Gold ETF’s… “while exchange-traded funds are reporting big inflows of gold, demand for real metal from Swiss refineries is not increasing. So he concludes that the ETFs are obtaining only paper claims to gold, and likely claims to gold that is already at least double counted in the bullion banking system.”

Very Interesting, don’t you think? You see the way the ETF works, is there is a trustee, who’ responsible for obtaining the Gold (or Silver) that is represented in the ETF buys for a particular day… But if the demand from the real refineries doesn’t match the growth that the ETF’s are reporting, well, then Houston, we have a problem…

Of course, I’ve always argued that I doubted that the physical Gold actually exists to match the ETF’s volume… But that’s always been just me, being the cynic that I am about that kind of stuff… And back in the day when I used to appear at just about every conference there was in the U.S. Canada and Panama, I would tell people that I didn’t care if they thought the ETF was safe… I didn’t think it was, and…. And this is the BIG BUT…. I would tell them to try and get their Gold out of an ETF! Oh, I’m certain that the Trustee would tell me that it would be no problem…. But what if a large number of people decided they wanted their Gold out of an ETF at the same time?

Anyway… physical Gold is the way to go in my humble opinion… I still receive many emails from readers asking me where they can obtain physical Gold and be sure they won’t be taken advantage of… I always tell them to call 1-800-926-4922, and ask for Tim Smith… Tim was my metals guru and still holds that position now that I’ve retired… So, there! Call Tim!

I had to chuckle a bit yesterday, when I saw a headline on Bloomberg… Now tell me where you’ve heard this line before… “The recession train has left the station”… Yes, that wasn’t me that said that in the Bloomberg article, but I had to wonder, who was reading whom? There’s more from the Bloomberg.com article and here it is: “honestly, even a truce of the sort Trump claimed on Friday won’t help the economic outlook much, writes Tim Duy. The global economy seems headed for a recession, which the U.S. will struggle to avoid. So the Federal Reserve will probably cut rates again this month. It has already started buying bonds to fix technical problems in the overnight repo market. (It doesn’t want to call this quantitative easing, notes Mohamed El-Erian, but for all practical purposes, that’s what it is.)” – Bloomberg.com

Chuck again… There we go, they’re calling for a rate cut again this month… Last week it was reported that Greece had joined the roster of countries issuing negative yielding bonds… Wait! What? You mean to tell me Greece issued negative yielding bonds, and sold them? As the late Harry Cary used to say, “Holy Cow”!

So, that makes Sweden, Switzerland, Japan, Germany, Spain, Italy, Greece, and more… that are on the list, receiving funds for you holding their debt… Now, I get it that there are some large entities, like pension funds, States, Cities, etc. that have in their rules that they have to own Gov’t Debt… As Mr. T used to say… “I pity the fool”… But anyone else stepping to the plate to take a piece of these bonds has to have their heads examined!

And getting back to the rate cut this month… The question now arises, when will the U.S. be back to zero? And then from there, to negative rates? To the Gov’t it’s no big deal, folks… it just means they get to finance their debt easily, with no burden on the future expenses of the country… But for you, me, and everyone else, not named Gates, or Buffett, or Zuckerberg, or whomever else has more money then God, we will be left holding the bag… And it will be much like the bag of dog pooh that was left on your front porch and set on fire… I’m just saying…

Oh, and one more thing on the Trade War… I don’t know if you noticed this or not in past 10 days, but the U.S. Trade Deficit widened… And yesterday China printed an increase to their Trade Surplus… Apparently the tariffs haven’t hurt China as much as everyone one have them believe, but they certainly did hurt our Trade Balance…. And before we go any further, I was explaining this to some friend the other night, about how our wages are still 5 to 1 with China… So, they can continue to make their goods much cheaper than we can… I’m just saying…

Yesterday, in the Eurozone, we saw August Industrial Production, reverse a negative print in July, with a 0.4% gain… But… the year on year figure remains negative at -2.8%… And that news didn’t help the euro to add to its gains from Friday, and in fact has pushed it down to just a few Bips from the 1.10 figure…

OK, I read this morning that Sears is going to close 100 more stores, as their turnaround is failing… I also read that GM’s car sales in China have collapsed… The quarterly earnings begin to get reported for U.S. Corporations today, and first up is JPMorgan…. there’s been 3 straight quarters of reduced earnings from the U.S. Corporations, and I truly believe that when all is said and done that this will be the 4th consecutive quarter that sees reduced earnings… Yes, they’re still making money, but… no wonder the stock market hasn’t really moved much year on year, eh?

OK, I’ve got this for you this morning…. Yesterday I was reading my daily dose of the great publishing guru, and writer extraordinaire, Bill Bonner, and daily diary, which can be found at www.bonnerandpartners.com and he featured this…. Charlie Bilello, a former hedge fund analyst, tweets:
Total Returns, last 20 years…
International Stocks: +110%
US Stocks (S&P 500): +221%
Long-Term US Bonds: +329%
Gold: +365%

Got Gold? I’m just saying…

OK… The U.S. Data Cupboard has just the Empire Region Index (manufactory Index for NY region) We found out long ago that the regional reports never play into the National ISM, so why bother giving them the time of day? Tomorrow, we’ll get September Retail Sales for our viewing enjoyment… The Butler Household Index indicates to me that the Retail Sales report will be positive, but nothing to write home about…

I have to go over the Data Cupboard for tomorrow, because…. I won’t be writing tomorrow… I have to show up early to the hospital for scans day. Last week I said it would be on Thursday, but I was wrong… So, no Pfennig tomorrow, but I’ll be back in the saddle on Thursday!

To recap… The Chinese say “not so fast there Tim!” to the “Tentative Agreement” and all the euphoria on Friday, was thrown to the curb on Monday… The currencies held steady Eddie, but couldn’t add to their Friday gains… And Gold started the day up $7, but ended the day only up $3… Still positive though, so I can’t complain too much!

For What It’s Worth… I told you last week, the Fed Chairman Powell, had reversed his rhetoric about how the economy was strong and robust, and had begun talking about how the Fed will begin to buy bonds again to improve liquidity… They won’t call it QE… But if it quacks like QE, walks like QE, and looks like QE… Then that’s what it is! this article on Zerohedge.com tells it like is and it can be found here: https://www.zerohedge.com/markets/not-qe-begins-fed-start-buying-60bn-bills-month-starting-oct-15

Or, here’s your snippet: “Just one day after we laid out what Goldman’s revised forecast for the Fed’s “NOT A QE” will look like, which for those who missed it predicted that the Fed would announce “monthly purchases of about $60BN for four months, split across Treasury bills and short maturity coupon Treasuries, in order to replenish the roughly $200bn reserve shortfall and support the pace of growth in non-reserve liabilities”, the Fed has done just that and moments ago – well ahead of consensus expectations which saw the Fed making this announcement some time in November – the U.S. central bank announced it would start purchasing $60BN in Bills per month starting October 15. This will be in addition to rolling over “all principal payments from the Federal Reserve’s holdings of Treasury securities and the continued reinvestment all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month.”

In short, the proposed schedule is virtually identical to the one Goldman “proposed” yesterday, one which sees the Fed purchase a grand total of $100BN or so in TSYs the near term, and one which is meant to “engineer a one-off level shift of roughly $200bn over the course of four months.”
But wait there’s more, because just as today’s surprising spike in repo use suggested, mere “NOT A QE” may not cut it, and just in case, in order to provide an “ample supply of reserves”, the Fed will continue with $75BN in overnight repos and $35 billion in term repos twice per week, “at least through January of next year.”

The Fed’s proposal indicates that between the continuation of repo operations, and the net $60BN balance sheet expansion, the Fed’s balance sheet will reach roughly $4.2-$4.3 trillion some time in Q2 2020.”

Chuck again… I was in Vancouver quite a few years ago, sitting in the lobby bar with good friend John Mauldin, and John told me that he had been at a dinner with high ranking Senators, who told him that they had instructed the Fed to never use the term Quantitative Easing (QE) again, that they had to call it something different… This conversation came back to me when I read the zerohedge.com piece…

Currencies today 10/15/19 American Style: A$ .6755, kiwi .6270, C$ .7558, euro 1.1005, sterling 1.2647, Swiss $1.0023, European Style: rand 14.8392, krone 9.1504, SEK 9.8345, forint 301.95, zloty 3.9015, koruna 23.4527, RUB 64.23, yen 108.31, sing 1.3707, HKD 7.8452, INR 71.33, China 7.0665, peso 19.24, BRL 4.1150, Dollar Index 98.50, Oil $53.01, 10-year 1.69%, Silver $17.63, Platinum $897.56, Palladium $1,726.75, and Gold… $1,494.32

That’s it for today and tomorrow, back on Thursday… Well, my beloved Cardinals have their backs against the wall after losing again last night… I have a question for the writers that vote on Gold Gloves… What in the world were you smoking when you have Marcell Ozuna a Gold Glove a couple of years ago? UGH!… double UGH! The Red Sox came back from an 0-3 hole in 2004, so I guess it can be done… but the reality of this 0-3 hole is that the Cardinals need to be making Tee times… Our Blues didn’t play well in the 3rd Period yesterday, and ended up with a tie, and a loss in OT… My Missouri Tigers have moved into the top 25! Fight Tigers! Earth Wind and Fire takes us to the finish line today with their song: After The Love Has Gone… And with that I hope you have a Tom Terrific Tuesday, and please Be Good to Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts